LLB Sixth Term Examination- 2020

Paper No: LB- 604

Title of paper: Principles of Taxation Laws
Duration : 2 Hours Maximum Marks: 100

Instructions to students:

a. Answer may be written in English or in Hindi; but the same medium should be used
throughout the paper
b. Attempt any Four questions.
c. All questions carry equal Marks.

1. Mr. A, by way of compromise decree agrees to pay to his wife, Rs 20,000 per month as
maintenance. This maintenance amount was declared a charge upon the properties in the
hands of A by the Court. The wife (assessee) received a total of Rs. 2,40,000 as maintenance
from A in 2018-19, but she contends that this amount received by her is not taxable under
the Income Tax Act 1961, as it is not listed under the definition of ‘income’ given in section
2(24) of the Act. Decide whether the maintenance amount received by the wife will be
‘income’ in her hands. Cite the relevant cases to support your answer.

2. The Assessee and the Director of Hotel Zeela entered into a lease agreement for the
management of already grown Mango Trees within the premises of Hotel Zeela. By virtue of
a clause in the agreement, Assessee is allowed to visit the premises for specific duration and
also to take away the Mangoes. The Assessee has exclusive right to sell the fruits. The
Assessee sells the fruits during the previous year 2018-19 for Rs 5 lakhs and treats the same
as agricultural income and does not include in his taxable income under the Income Tax Act
1961. However, the Assessing Officer treats the same as business income and hence
chargeable to income tax. Critically analyse whether this income in the hands of the
assessee falls under section 2(1A) of the Income Tax Act 1961; cite the relevant cases.

3. Assessee is carrying in the business of purchasing land and carrying out development for
the purpose of deriving income out of sale of such properties. He is regular in payment of
taxes on income earned under Sec 28. During the relevant previous year 2018-19, he had
 earned income by way of letting out properties and partial income was not receivable on
account of bad debts.
Discuss the treatment of income, also refer to relevant provisions and cases.

4. A sugar mill has advanced money to farmers for carrying out cultivation of Sugarcane.
Usually, this loan advanced was adjusted at the time of purchase of sugarcane from farmers.
During the year, due to unfit quality of the crop for manufacture of sugar at the Sugar Mill:
The assessee (Sugar Mill) refuses to take the crop but the farmers disagreed to pay back the
advance money and accordingly the assessee had written off the amount advanced to
farmers as bad debt.
The Income Tax Officer treated the money advanced to the farmers by the Sugar Mill as
capital expenditure and hence disallowed the deduction claimed by the assessee. Discuss
the correctness of the stand taken by the Income Tax Officer by citing relevant provisions
and case laws. Will your answer be different if the money advanced by the Sugar Mill to the
farmer is not adjusted with the purchase price of the sugarcane? Explain.

5. During the assessment year 2017-18, amounts claimed as deduction towards interest paid
against loans taken in the Income Tax Return filed by the assessee were accepted by the
Assessing Officer. In the subsequent assessment year 2018-19, the Assessing Officer found
that majority of loans for which claims for deduction of interest paid in that year were
bogus and made additions accordingly in the taxable income after he had come into his
possession of relevant materials. The Assessing Officer, having regard to the similarity of
claims and persons who were said to have advanced unsecured loans during the assessment
years in question, viz. 2017-18 and 2018-19, he issued notice under section 148 of the
Income Tax Act 1961, stating that assessee should file a fresh income tax return for 2017-18
as he has reason to believe that some income has escaped assessment due to failure to make
full and true disclosure by the assessee.
Assessee challenges the reopening of the assessment under section 147 and issuance of
Notice under section 148 of the Income Tax Act 1961. Decide in light of the relevant case
laws and the provisions.
6. Mr. Z, (Director) was in live-in relationship with Ms. O (Secretary) in the same business
concern. He had transferred the shares of Company A to Ms. O. on the day of marriage and
registered her as the owner of the shares after marriage was solemnised.
During the relevant previous year, the shares earned dividend of Rs 3,00,000/-. Decide the
chargeability of the dividend in the hands of Mr. Z and critically analyse the relevant
provisions of the Income Tax Act 1961 in light of the decided cases.